Religious violence once again threatened to engulf western Burma after a Buddhist mob destroyed two Muslim houses on Sept. 29 and had to be dispersed with warning shots from security forces.

The disorder took place after an ethnic Rakhine taxi driver parked in front of a Muslim-owned shop in the city of Thandwe, Arakan state, blocking the loading bay. A row then broke out, after which the Buddhist taxi driver accused the shopkeeper of insulting him.

The merchant, a member of the Kaman ethnic group, was detained by police but released after he signed a document pledging not to behave “rudely.” However, around 200 Buddhists began hurling stones and torched two buildings — including the house of a prominent Muslim leader directly opposite the City Hall — before surrounding a local mosque while brandishing flaming torches. The crowd only dispersed when police fired shots into the air.

An estimated 130,000 people live in Thandwe, a historic port. Ngapali Beach, Burma’s most famous resort and one popular with foreign visitors, is situated just 4 miles away.

Abu Tahay, chairman of the Union Nationals Development Party, which represents the Muslim Rohingya, tells TIME that members of the 969 ultranationalist-Buddhist organization were seen in the town stoking tensions. “They pretend to be a religious group, but really they are a racist group,” he says.

The situation remains tense with local Muslims refusing to leave their homes, Abu Tahay says. Reports that more houses were burned down on Monday night could not be independently verified because of poor local communications.

Since June 2012, religious violence between Buddhists and Muslims has killed more than 250 people and left around 150,000 homeless. The vast majority of attacks target the stateless Rohingya community — described by the U.N. as one of the world’s most persecuted peoples — who are seen by the Rakhine as interlopers from neighboring Bangladesh. Because ethnic and religious tensions are on a knife-edge, rioting can erupt over the smallest of pretexts. Dozens were killed and thousands of people had to flee their homes after an argument over a gold ring in the central Burma town of Meikhtila escalated in March.

“The Kaman residents are worried after they were threatened that Thandwe will become a second Meikhtila,” said Nay San Lwin, a Rohingya activist based in Germany.

On Monday, representatives from 17 townships in Arakan state called on the government to allow the creation of ethnic Rakhine militias to ensure security. Meanwhile, members of the Organisation of Islamic Cooperation are preparing to visit the region to assess the plight of the Rohingya, a large proportion of whom continue to live in squalid camps after their homes were set ablaze.

Abu Tahay says that while he has made contact with Rakhine groups that want to work for peace, there are still many who “believe that the Rohingya are a dangerous people that must be brought under control.”

Burma, which is officially known as Myanmar, is undergoing a significant democratic transition after half-century of brutal military rule. Senior military personnel still hold key government positions, however, and an upsurge in racial and religious violence could jeopardize reform.

“There are always people who wish to rock the boat,” Burmese Foreign Minister Wunna Maung Lwin told the annual meeting of the U.N. General Assembly in New York City on Monday. “We will not let anyone take advantage of political openness to instigate violence among different ethnic or religious communities.”